Early-Stage VC Greycroft Closes $200 Million Growth Fund

Greycroft Partners, a New York firm that saw its early investments in Maker Studios, Buddy Media, Huffington Post and Braintree Payments Solutions turn into large payouts, has now closed on its first growth fund at $200 million.

Greycroft set out to raise its growth fund in late February with a target of $160 million and with a hard cap of $200 million.

Previously, the firm was able to take small portions of its portfolio companies’ Series C and Series D rounds. With the new fund it will be able to invest $10 million or more in such deals.

“Our most successful companies have all gone on to raise growth financings,” said Partner Ian Sigalow. “The ability to have dry powder to support our best companies is a valuable asset for those entrepreneurs.”

The new fund means there is another expansion-stage investor in New York, which has few such firms. “So many of our companies are not in San Francisco and have a harder time tapping into these expansion-stage funds in the Valley,” Mr. Sigalow said.

Ninety percent of Greycroft’s deals are outside Silicon Valley, Mr. Sigalow said. Of the 83 companies in its portfolio, about 25% are based in New York, he said. The firm also has an office in Los Angeles.

Greycroft will use the fund, Greycroft Growth LP, to back Internet and media companies, its main sectors since the firm was founded in 2006.

The firm was founded by Alan Patricof, Mr. Sigalow and Dana Settle. Mr. Patricof is one of the earliest venture investors, having founded Patricof and Co., which was the predecessor to Apax Partners, in 1970. Mr. Patricof, along with Mr. Sigalow and partners Ms. Settle, John Elton and Mark Terbeek, will manage the new fund, Mr. Sigalow said. The firm is also hiring two new people below the partner level to help with investments.

Greycroft opted to create a separate growth fund rather than raising a large general fund that would cover both early- and late-stage investments, in contrast to firms like Andreessen Horowitz and General Catalyst Partners, which started out with smaller early-stage funds and shifted to larger multi-stage funds.

“People who have done it historically, have ended up with portfolios that were heavily weighted to growth,” Mr. Sigalow said. He said the incentives in a large fund are to invest a larger amount per company. Greycroft partners wanted to keep the strategies and profiles of their funds separate.

“From our perspective if you are going to make one-, two-, three-million-dollar investments, you should have a fund of $150 million to $200 million. If you are going to make $10 million investments you should have a fund that’s $200 million to $500 million,” Mr. Sigalow said.

Limited partners, too, can have different expectations for different vehicles, he said, with the early-stage fund viewed as an illiquid, higher risk and higher return asset portfolio, and a growth fund as one that provides smaller but faster returns.

Greycroft was an early investor in several successful companies that were sold recently at high multiples, including Maker Studios, sold to Walt Disney Co. for $500 million in cash and $450 million in potential additional payouts; Braintree, bought by PayPal for about $800 million last year; and Buddy Media, bought by Salesforce.com for about $800 million in 2012.

The firm raised a $75 million first fund in 2006, followed by Greycroft II at $131 million in 2010, and Greycroft III last year, a $175 million early-stage fund from which it is currently investing. It expects to make 15 to 20 early-stage deals this year and three or four growth-stage deals, Mr. Sigalow said.